I provide sound counsel and achieve outstanding results for clients in criminal and civil tax litigation and asset forfeiture litigation throughout the United States. I also perform estate planning for Michigan residents. My firm, Dunn Counsel PLC, is based in Troy, Michigan. I earned my B.S.B.A. cum laude from Aquinas College in 1978, my J.D. from Notre Dame Law School in 1985, and my LL.M. (Taxation) from Washington University in St. Louis in 1991. Before law school I was a Senior Accountant on the Audit Staff of Ernst & Young. This blog examines current issues arising in my law practice.

Relinquishing U.S. Citizenship

Facebook co-founder Eduardo Saverin caused a stir recently by moving to Singapore and renouncing his U.S. citizenship. In so doing he halved the income tax rate on his future income, from 39.6% in the U.S. to 20% in Singapore. He eliminated tax on his future capital gains ─the U.S. taxes capital gains at 15%, but Singapore dropped its capital gains tax effective February 15, 2008. He also will avoid estate tax at his death. The top rate of U.S. estate tax—which would apply to a large estate such as Saverin’s—increases to 55% on January 1, 2013. Singapore has no estate tax.

Saverin will avoid the tenacious U.S. worldwide tax system. The U.S. is unique in imposing its income tax on its citizens’ and its resident aliens’ worldwide income, offering them a credit for foreign tax paid on the income. The U.S. imposes its estate tax on its citizens’ and its resident aliens’ worldwide estates, allowing them a credit for foreign estate tax paid by their estate. To police this regime, the U.S. requires its citizens and its resident aliens to annually file a report, Form TD F 90-22.1 (“FBAR”), disclosing their foreign accounts. A draconian penalty lies for failure to report an account—up to 50% of the account balance.

Beginning for tax returns due in 2012, the Internal Revenue Service requires citizens and resident aliens with foreign financial accounts exceeding threshold amounts to file with their U.S. income tax return Form 8938, Statement of Specified Foreign Assets. A taxpayer who fails to file a required Form 8938 is subject to a $10,000 penalty. The penalty increases by $10,000 for each 30 days which the delinquency continues beyond 90 days, up to a maximum penalty of $50,000.

Many are incensed by Saverin’s conduct, as our country gave him the opportunity to earn his fortune. He did incur a substantial “exit tax” upon expatriating. Internal Revenue Code § 877A(a)(1) provides that a “covered expatriate” shall be treated as selling all of his property at fair market value on the day before the expatriation date. Thus, if Mr. Saverin’s only property consists of Facebook stock valued at $3 billion, and he has no adjusted basis in it, he incurred an exit tax, at the current U.S. capital gain tax rate of 15%, of $450 million.

(1) whose average annual net income tax for the five tax years preceding the tax year of loss of U.S. citizenship exceeds $124,000;

(2) whose net worth on the date of loss of U.S. citizenship is at least $2,000,000; or

(3) who fails to certify to the Secretary of the Treasury that he has complied with U.S. tax law for the five tax years preceding the year of loss of U.S. citizenship, or who fails to provide the Secretary evidence of such compliance as the Secretary may require.

Thus, a U.S. citizen who is not a “covered expatriate” can relinquish U.S. citizenship without incurring the exit tax. Those who are not exempt from the exit tax can exclude the first $651,000 of gain on the deemed sale of their property in determining the tax.

“Expatiate” for purposes of IRC § 877A(a)(1) includes a U.S. citizen who has committed one of the following expatriating acts with intent to relinquish U.S. citizenship:

(1) obtaining naturalization in a foreign state upon application after having attained the age of 18 years;

(2) taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state after having attained the age of 18 years;

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Just a thought though, if you are permanently living in another country, i.e not America. I doubt you are that concerned with american history and your loyalty to it since you chose to go live somewhere else.

Most of what you say I agree with. But the side track on the Canadian thing and swearing allegiance to the British Monarch deserves a comment.

Perhaps the US will always see tyranny at the end of a Red Uniform but it in fact it is; “red uniform at the end of Tyranny” and the enemy is not Britain necessarily, nor any commonwealth country, it is tyranny itself.

Tyranny is often born of myopic thinking and forcibly inflicting that thinking on others. It can easily be said that the US itself is most or at least as much guilty of that same tyranny. Certainly Canada has not.

While I appreciate the drum beating, flag flying, chest puffing is a build up to July 4th and celebration of the victory over the British, perhaps a better celebration would be to become a more wise, introspective and open minded country and show that we have learned, what the British failed to learn, so many years ago.

Allow me to put forth one question: Did Eduardo Saverin violate ANY law related to his income or investment? If you answer this question in the affirmative, please reference the statute and text of what law he violated.

I put this question forward, not because I am commending his actions – nor am I condemning. But if the answer to the question is in the negative – he broke no laws – then I think we all have to pause a moment and ask ourselves what the issue is. We don’t like what he did? Why can’t he answer using the same words as Gov. Romney – All my offshore investments are legal and adhere to U.S. law. Ok, so maybe some of us don’t like that answer either. Hmmm, well who passes the laws? And before we answer “the bums in congress” stop And think Who elects Congress? We do. I appreciate (and often enjoy) reading the many and varied posts, rants, raves etc. Sometimes the emotions go so far that I say to myself – wow, get a therapist.

1. One of the key reasons the founding fathers of this country fought against the “Red coats” was “No taxations without representations”. The US citizens residing overseas does not have representations in the government.

2. Experian, a company that owns almost 95% of all US household information, is 100% own by a British company.

3. The British is still largest investor in US every year.

4. Isn’t the right to association one of the basic human rights that US is always lecturing everyone?

Wow – I’ve been reading Forbes since I was a teenager (1980′s) and I have to say I’m completely taken aback by the drivel I just read in this article. Mr. Saverin made his money in the US and, apparently, would like to keep some of it for himself and his family rather than hand it over to the jack-booted thugs who populate our government and, the IRS. I say “good for him”. By investing in Facebook early on he has helped create thousands of jobs for this country and has reaped the rewards of his investment. He ought be given a medal. Instead, this author and others would rather us think he is some kind of coward for deciding he and his family are better off financially in another country and for not feeling obliged to continue to fund the socialist agenda of our government which is slowly crushing the very liberty and entrepreneurial spirit the author purports to cherish. The author’s jingoistic perspective and flag-waving only serve to further detract from what could have been a superb article. It would have been far more revealing to discus WHY such a wildly successful investor would want to leave such a capitalist paradise as the US. Could it be we’re NOT the best choice for liberty, entrepreneurship and capitalism anymore? Try writing about that, next time.

I hope a superior article – able to discuss the relative merits of the US taxation scheme WITHOUT resorting to jingoism, personal pride (Oh wow, your son serves his country. Which has aircraft carriers. Relevant how?), and the entire IRS service manual (please: keep articles concise and informative) – soon emerges on Forbes. It certainly deserves better.

And a more specific criticism: Eduardo Saverin was born in Sao Paulo, Brazil. Should he really feel any of the same duties to ‘The Founding Fathers’ etc. as you?

your article started about a Brasilian US citizen who has ex-patriated to Singapore, and ended with reasons as of why US Citizens should not become Canadians and should dislike the British.

I am baffled by what I thought started as an interesting piece and then jumped from one corner to another without any leads. Bravo to your patriotism, boo to your story telling.

I would like to read more about what a US Citizen must do to leave the country he apparently does not feel like being bound to anymore. I would not like to read about reasons of why not to become citizens of a certain completely unrelated area of the world.

As you have rightfully mentioned in your comment – no human institution is perfect and institutions change with time – hopefully they evolve. I would like to mention that the monarch the Brits swear allegiance to, is not the same monarch who you fought a war with hundreds of years ago. And seeing the latest wars led by your country, you are actually spitting in the face of your allies.

I would also like to hear if citizenship is overvalued in a globalized world and why Singapore is such an attractive country to live in – what are they doing better than the countries the people moved away from in first place?

And last but not least – if the United States are the greatest country in the world, why does it need to chase after people who are moving elsewhere.

Mr Dunn: - Likewise, my post did not imply your son served on a carrier. Merely that he served his country. Which also happen to have aircraft carriers. - And regarding the IRS manual, I was merely making the point that directly quoting the actual legal documents makes for no good article.

My post was rude and uncalled-for, I admit. But I think I pointed out some valid criticisms. Whilst I’m sorry for my tone of deliverance, I make no apology for my criticisms.

P.S. Being a British resident myself, I’d also like to ask precisely who actually calls Washington a ‘rebel’. Don’t bother answering if it was just an individual in an off-handed remark – and if so, don’t bother masquerading it as some meaningful observation in future articles either.